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508 reasons to privatize water

Four hundred and seven. That’s the number of municipally owned water treatment plants that failed Ontario inspections in the year ending March 31, 2003. More than two years after contaminated water killed seven people and sickened 2,300 in the town of Walkerton, Ont., 61% of the province’s water plants still got failing grades in training, sampling, disinfection or water quality.

That’s an astonishing figure. And it’s proof that public water provision isn’t working in Ontario.

Public sewage treatment in Ontario isn’t faring much better. In 2001 (the last year for which information is available), 101 sewage facilities failed to meet legal limits, policies, or guidelines. The trend is worsening: The numbers are up from 92 the previous year, and 82 the year before that.

Although public water and sewage have gone terribly wrong in Ontario, not one of the three party leaders has the common sense – or, more likely, the political courage – to champion the solution that is proving itself around the world: privatization. Not one advocates calling on private-sector expertise, developed over the course of a century. Not one advocates tapping into private capital, the lifesaver of needy systems in England and the United States. Not one advocates taking advantage of the accountability provided by enforceable contracts or uncompromised regulatory systems established to oversee private providers – accountability that has elsewhere brought so many systems into compliance with laws protecting public health and the environment.

Instead, they offer platitudes and empty promises. Tory Ernie Eves vows to enforce tough standards, but his record belies his intentions. In the first eight months of this year, the Ministry of Environment announced charges relating to just four water systems and fines relating to just 11 systems. The fines were generally modest; only one exceeded $16,000. During the same period, the ministry announced charges relating to just three sewage operations, along with one lone fine regarding a sewage facility.

Liberal Dalton McGuinty also promises to prosecute and fine polluters. But the Liberals’ enforcement record – like the NDP’s – is no more convincing than the Conservatives’. The problems at Ontario’s water plants predate the Conservative government by many years. A ministry study spanning 1987 to 1993 found at least half of the water plants it looked at had problems with operations and monitoring. It noted that many operators did “not understand the fundamentals of water treatment.” Water plant inspections between 1990 and 1992 found that fewer than half of the plants complied with provincial guidelines or objectives.

Liberal and NDP governments likewise tolerated widespread sewage pollution. Under the watch of Liberal premier David Peterson, more than 100 municipal sewage facilities exceeded provincial guidelines each year. Under NDP premier Bob Rae, the numbers fell. Nonetheless, in 1994, Mr. Rae’s last full year in office, 75 plants exceeded guidelines. During these years, the government prosecuted only a handful of facilities.

The problems at Ontario’s water and sewage plants – spanning four leaders of three parties over the course of almost two decades – are built into the very nature of the systems and the institutions that govern them.

Current arrangements create perverse incentives for public sector owners and operators, who rarely bear the costs of poor performance. Unlike their private sector counterparts, they aren’t bound by contracts with stiff financial penalties for failing to meet specified standards. They enjoy a number of liability limitations that dull their incentives to act responsibly. If fined, they can pass along the fines to taxpayers. And if their reputations suffer, they won’t be put out of business.

The provincial government is also dogged by perverse incentives – in its case, stemming from conflicting responsibilities for regulating, financing and operating water and sewage systems. If the government, by enforcing its laws, requires expensive improvements to poorly performing systems, it may well have to foot the bill. And it may well have to act against its own Clean Water Agency, which operates a number of non-complying plants. Such conflicts create a built-in bias against law enforcement.

Privatizing water and sewage utilities will fundamentally change the incentives. It will free up the government to regulate. And it will do much more. It will provide a source of capital to help meet tens of billions of dollars in infrastructure needs. It will create incentives for efficiencies and innovations that will enable the province to get the most out of every dollar. These factors alone should provide sufficient reason to privatize.

But there are other, equally compelling, reasons. Four hundred and seven deficient water plants. One hundred and one scofflaw sewage plants. Do the math, and you have 508 reasons to privatize utilities.

Water by the numbers:

Investment in R&D by two largest water multinationals, 1999:
$270-million

Number of U.S. communities that have contracted out water or waste water operations:
2,400

Number of privately owned water systems in the United States:
28,500

Number of privately owned water systems in Ontario:
10

Needed investment in Ontario’s water and sewage systems, 1997-2012:
$32-billion

Actual investment by private water companies in England and Wales, 1989-2005:
$112-billion

Percentage of beaches in England and Wales meeting
bathing water standards one year before privatization:
66

Percentage of beaches in England and Wales meeting
bathing water standards 13 years after privatization:
99